Form 8-K filed 10/20/06
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of Report: October 20, 2006
(Date
of
earliest event reported)
PG&E
CORPORATION
(Exact
Name of Registrant as specified in Charter)
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California
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1-12609
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94-3234914
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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One
Market, Spear Tower, Suite 2400, San Francisco, California
94105
(Address
of principal executive offices, zip code)
415-267-7000
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former
Name or Former Address, if Changed Since Last Report)
PACIFIC
GAS AND ELECTRIC COMPANY
(Exact
Name of Registrant as specified in Charter)
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California
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1-2348
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94-0742640
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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77
Beale Street, P. O. Box 770000, San Francisco, California
94177
(Address
of principal executive offices, zip code)
(415)
973-7000
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
Material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
8.01 - Other Events
Proposed
Decision Approving New Long-Term Generation Resource Commitments
On
October 17, 2006,
a
proposed
decision was issued in a proceeding pending at the California Public Utilities
Commission (CPUC) that recommends the approval of seven
agreements that would provide 2,250 megawatts (MW) of new long-term electricity
generation resources in Northern California in
accordance with
Pacific
Gas and Electric Company’s (Utility)
2004-2010 long-term electricity procurement plan. Comments on the proposed
decision are due on November 6, 2006. It is expected that the CPUC will issue
a
final decision by the end of the year.
Proposed
Utility-Owned Projects
Two
of
the
agreements provide for
third
party developers to construct generation facilities to be owned and operated
by
the Utility. One
of
these two contracts calls for the construction of a 657-MW power plant to
be
located in Colusa, California. The other contract calls for the construction
of
a 163-MW power plant at the Utility’s Humboldt Bay facility to replace the
existing power plant at Humboldt Bay, which is at the end of its useful life.
As
to these contracts, the proposed decision recommends the adoption of an initial
capital cost equal to the sum of the fixed contract costs plus the Utility’s
estimated owner’s costs. The initial capital costs for these two plants are
filed with the CPUC under confidentiality provisions, but are consistent
with
the Utility’s estimated capital costs range from $900 to $1,100 per kilowatt.
The proposed decision recommends the rejection of the Utility’s request to
include potential incentive payments to the contractor and contingency amounts
that may be incurred by the Utility in connection with unforeseen events
in the
authorized initial capital costs. Instead, the Utility would be authorized
to
adjust the initial capital cost to reflect any actual incentive payments
paid
under the contracts through notification to the CPUC but without a
reasonableness review. The Utility’s request to recover other additional capital
costs would be
subject
to a reasonableness review.
The
proposed decision’s findings regarding initial capital costs differ from the
CPUC’s December 2004 decision that capped cost recovery for construction of
utility-owned generation resources at their final bid price and required
the
utilities to share any construction cost savings with customers while absorbing
the full amount of any cost overruns. (In December 2005, the CPUC had indicated
that it would revisit its determination regarding the “cost cap” and the sharing
of construction cost savings in 2006.) The proposed decision recommends the
rejection of the Utility’s request to permit recovery of the above-market costs
of the new projects through a non-bypassable charge to be imposed on departing
customers for the 30-year life of the project. Instead the proposed decision
finds that the 10-year cost recovery period would apply. At the end of this
10-year period, the Utility would still be able to collect any above-market
costs from its current full-service customers (known as “bundled” customers),
but will no longer be able to charge departing customers for these costs.
In
addition, the proposed decision recommends the adoption of the Utility’s
estimates of non-fuel operations and maintenance (O&M) costs for the purpose
of establishing an initial revenue requirement for the two Utility-owned
generation projects. The proposed decision does not accept the Utility’s
proposal to include contingency amounts in the authorized revenue requirements
for O&M expense. Instead, the proposed decision suggests that the Utility be
authorized to adjust the initial revenue requirement through notification
to the
CPUC for changes to its O&M expense forecast that may occur as a result of
(1) increased staffing levels due to permitting requirements, or (2) a change
in
the commercial operation date, which would change the timing of the O&M
expense streams. The proposed decision recommends that the Utility’s requested
O&M contingency amounts be placed in a one-way balancing account, which the
Utility may recover if and when they are actually expended. The proposed
decision notes that a one-way balancing account is appropriate because the
new
plants
may
not
become operational until after the Utility’s next general rate case and the
Utility should not have to wait to recover these costs until after they have
been reviewed in the next general rate case.
The
proposed decision notes that the revenue requirement to recover the initial
capital costs for the Colusa project will begin to accrue in the Utility
Generation Balancing Account (UGBA) as of the date the completed plant is
transferred to the Utility, and would be included in rates on January 1 of
the
following year. The initial revenue requirement for the Humboldt Bay project
would begin to accrue in the UGBA as of its commercial operation date, and
would
be included in rates on January 1 of the following year.
Proposed
Power
Purchase Agreements
The
proposed decision also recommends the approval of five power purchase
agreements. The Utility has executed four of these agreements that would
provide
approximately 800 MW of capacity with terms from 15 to 20 years. The Utility
has
entered into a letter of intent with an affiliate of Calpine Corporation
that
provides that the parties would execute the fifth power purchase agreement
to
provide 601 MW of capacity over a 10-year term if the CPUC approves the
agreement and if certain other conditions, including that the associated
Calpine
Corporation affiliate emerges from bankruptcy or transfers the project assets
to
a non-bankrupt special purpose entity, are met. The Utility cannot predict
whether these conditions will be satisfied or whether the parties will execute
a
power purchase agreement.
The
proposed decision recommends that the
Utility be authorized to recover the costs of the power purchase agreements,
along with other variable costs, through the Energy Resource Recovery Account,
a
balancing account designed
to track and allow recovery of the difference between the authorized revenue
requirement and actual costs incurred under the Utility's authorized procurement
plans. If the CPUC approves the agreements and if permitting and construction
schedules are met, the new generation facilities are anticipated to begin
delivering power to the grid during 2009 through 2010.
General
Rate Case
On
October 19, 2006, the CPUC approved the Utility’s request in the 2007 General
Rate Case (GRC) proceeding to make the revenue requirements
ultimately
adopted by the CPUC in the proceeding effective on January 1, 2007. The CPUC
noted that delays in the proceeding schedule caused by the parties’ good faith
settlement negotiations made it unlikely that the CPUC would issue a final
decision before January 1, 2007. As previously disclosed, on August 21,
2006, a proposed settlement agreement reached among the Utility, the CPUC’s
Division of Ratepayer Advocates, and other parties, was submitted to the
CPUC
for approval. If approved by the CPUC, the settlement agreement would resolve
all of the issues raised by the settling parties and all revenue
requirement-related issues raised by other parties. The Utility Reform Network,
Aglet Consumer Alliance, and the Alliance for Nuclear Responsibility, together
with the Sierra Club, have filed protests to the proposed settlement agreement.
PG&E
Corporation and the Utility are unable to predict whether the CPUC will approve
the settlement agreement.
In
addition to the GRC revenue requirement changes, the Utility’s electric and gas
distribution rates that will become effective on January 1, 2007 will reflect
the same rate of return on equity (11.35%) and the same authorized capital
structure (46% long-term debt, 2% preferred stock, and 52% common stock)
as were
in effect for 2006, as authorized by the CPUC on August 24, 2006 in the
Utility’s 2007 cost of capital proceeding.
Renewables
Portfolio Standard
On
October 19, 2006, the CPUC adopted rules for reporting and determining whether
the California Renewables Portfolio Standard (RPS) requirements have been
met.
The
California RPS statute, as amended on September 27, 2006, requires each
California retail seller of electricity, except for municipal utilities,
to
increase its purchases of eligible renewable energy (such as biomass, small
hydro, wind, solar and geothermal
energy)
by at least 1% of its retail sales per year, so that the amount of electricity
purchased from eligible renewable resources equals at least 20% of its total
retail sales by the end of 2010. (On
September 27, 2006, the California Governor signed into law California Senate
Bill 107 to accelerate the deadline to meet the 20% RPS requirement to
2010
from 2017. The CPUC had already adopted the earlier deadline as a matter
of
policy.)
The
RPS
statute requires that the CPUC allow retail sellers to use flexible compliance
rules to apply excess procurement in one year to meet a following year’s
procurement RPS target and to satisfy a deficit in their current year
procurement RPS target by deliveries of renewable power within the following
three years. The CPUC’s decision confirms that the existing flexible compliance
rules apply to procurement through 2009, allowing an excused 2009 deficit
to be
fulfilled by the end of 2012. The CPUC also stated that the 20% RPS target
must
be met with actual eligible renewable energy deliveries in 2010 and that
a
retail seller that has reached the 20% target in a given year is excused
from
increasing its procurement the next year (or subsequent years) only if it
has
met its annual procurement target in each of the prior years, or is otherwise
excused by the CPUC. The CPUC stated that it will address whether flexible
compliance rules apply beyond 2010 in a future decision.
Failure
to satisfy the annual requirement after application of the flexible compliance
rules may result in a penalty of 5 cents per kilowatt-hour, with an annual
penalty cap of $25 million. The
exact
amount of any penalty and the conditions under which it would be applied
are
subject to the CPUC’s review of the reasonableness of the utilities’ efforts to
meet the requirement. In addition to construction and development risks,
whether
renewable energy from new generation facilities can be timely delivered is
subject to electric transmission constraints.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrants
have
duly caused this report to be signed on their behalf by the undersigned hereunto
duly authorized.
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PG&E
CORPORATION
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Dated:
October 20, 2006
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By:
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G.
ROBERT POWELL
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G.
ROBERT POWELL
Vice
President and Controller
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PACIFIC
GAS AND ELECTRIC COMPANY
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Dated:
October 20, 2006
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By:
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G.
ROBERT POWELL
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G.
ROBERT POWELL
Vice
President and Controller
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